# China's Manufacturing Shift Challenges Europe's Luxury and Auto Industries From Gucci sneakers to German cars, China is competing in high-end markets once dominated by Europe. - **Source:** [Fortune](https://fortune.com) - **Published:** 2026-09-27 - **Topic:** [Business](https://brifing.si/c/business) - **Original article:** - **On Brifing:** https://brifing.si/s/e0816f54-7142-4014-8c48-81e8c9d4ab85 ## Gucci's Chinese-made sneakers Gucci's new $1,000 sneakers break with its 105-year tradition by being made in China, not Italy. The fashion house selected a Chinese manufacturer for its technological know-how and ability to meet quality standards, not just cheap labor. This marks a symbolic shift in perception of Chinese manufacturing. While Gucci will continue producing other items in Italy, this move signals China's entry into high-end consumer goods. ## The second China Shock Economists describe China's current manufacturing expansion as the 'second China Shock,' following the early 2000s wave of cheap clothing and electronics. Now China exports electric vehicles, industrial machinery, and luxury goods that compete directly with European manufacturers. This shift mirrors the development paths of South Korea, Taiwan, and Japan, but at unprecedented scale. China gained technical expertise partly through decades of joint ventures with European companies like Volkswagen. ## Germany's industrial challenges Germany faces significant pressure as China's export mix increasingly resembles Germany's - primarily factory machinery and cars. German exports to China fell 9.7% in 2023 while imports from China rose 8.8%. German car exports to China alone dropped by a third last year. Volkswagen's deliveries in China fell 36.6% in Q2 2023, mirroring losses at Mercedes-Benz, BMW, and Porsche. The company announced plans to cut its model lineup by half and eliminate 100,000 jobs. ## Labor cost advantages remain Despite moving up the value chain, China maintains significant labor cost advantages. Chinese manufacturing workers earned $629 monthly on average in 2023, compared to $1,341 in Taiwan and $2,075 in South Korea. This cost differential allows Chinese manufacturers to compete aggressively on price while improving quality. European companies now face Chinese firms that have evolved from being suppliers to becoming direct competitors in global markets. ## EU protectionist measures The EU has implemented tariffs to protect its automotive industry, including 10% standard car tariffs and up to 35.3% additional tariffs on Chinese-made EV batteries. These measures respond to Chinese automakers outselling Japanese brands in Europe for the first time in May 2023. However, experts question whether tariffs can address the fundamental shift in competitive advantages, particularly in electric vehicles where China leads in battery and software technology. ## Disruption of traditional advantages The shift to electric vehicles has eroded Germany's traditional advantage in internal combustion engines. China now leads in battery and software technology - the new performance benchmarks for cars. This technological disruption mirrors what happened to Swiss watchmakers in the 1970s when Japanese quartz watches nearly destroyed the industry. Swiss brands survived by retreating to the luxury segment, but the industry shrank dramatically. ## Strategic responses European companies are adapting through partnerships with Chinese manufacturers. Volkswagen invested $706 million for a 5% stake in Chinese EV maker Xpeng and will co-develop cars for the Chinese market. Similarly, Gucci's collaboration with Chinese manufacturers combines Italian design with Chinese production capabilities. These partnerships acknowledge China's manufacturing ascendancy while attempting to maintain European brand value. ## Market segmentation future Experts predict European manufacturers may follow the Swiss watch industry model - retreating to the ultra-luxury segment while ceding mass markets to Chinese competitors. However, this strategy presents challenges for volume producers like Volkswagen that cannot easily transition to Ferrari-like exclusivity. The middle market appears most vulnerable, with Europe's competitive advantage now concentrated only at the very top end of product categories. ## Sources covering this story - https://fortune.com/2026/09/27/china-gucci-volkswagen-germany-europe-exports/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._